I made my first leap into the Apple world yesterday with my shiny new iPod Touch. I messed around on it for 2 hours downloading some game applications and songs.
When I was ready to shut down for the night... I noticed some settings that would allow me to put restrictions on its use. I thought, "Great! Now I can lock my kids out of downloading whatever random application they go looking for, since this Touch is linked to my iTunes account; which is linked to my payment information."
So I turned on the restriction for installing apps; thinking it would only stop someone that was using my iTouch on a Wi-Fi network from installing applications from the App Store. I turned off my iPod and slept for the night.
The next day I fired up iTunes with my trusty Touch connected to the USB on my laptop. I downloaded one more app from iTunes and was going to sync with my Touch.
I clicked on the Applications tab in iTunes for my iPod Touch and all the controls were greyed out (disabled.)
It turns out you need to lift/remove the restriction on your iPod in order to enable iTunes to install an app on it too.
To enable/disable the restriction, navigate to:
Settings >> General >> Restrictions >> Installing Apps
EDIT: Make sure you sync your device after making the change... some have still had the option greyed out after making the change.
Annoying, but safe... and now you know...